June 7, 2017

June 7, 2017

The indexes are holding tight and near their highs as they consolidated last week’s gains. The NASDAQ Composite Index did get hit with a distribution day yesterday, as did the other major market indexes. But it is so far holding up in a tight three-day flag formation after posting new all-time highs last Friday.

From the point of view of the indexes, things look okay. Of course, this is not necessarily a reason to become complacent and drop one’s guard. As I recall, back in mid-May things were looking quite good on May 16th as the index pushed to new all-time highs at the time.

But the next day investors had the rug pulled out from underneath them as the index gapped down and broke hard to the downside on heavy selling volume. That’s the thing about this market. The better it looks the more nervous I get! ;-p

The S&P 500 Index is also holding in a tight three-day bull flag. Today it tested the 10-day moving average without quite getting there as volume declined. This looks constructive, but we might note that the S&P was looking constructive back on May 16th as well, and then broke hard the next day.

Not that we are going to suddenly break to the downside, but just keep in mind that this market loves to pull the rug out on you, usually when you least expect it. In that case playing a strong defense is necessary, adhering to stops and trailing stops on a stock by stock basis. Generally, but not necessarily all the time, this will keep you out of trouble.

The SPDR Gold Shares ETF (GLD) gapped up to a higher high yesterday on big volume, but gave that up today as it backed down to fill yesterday’s gap. For the most part, gold should not be bought on strength, but on pullbacks to logical support.

With the GLD testing the lows of the gap-up “rising window,” the “window sill” if you will, that would represent a lower-risk entry position. Previously, pullbacks to the 10-day line offered references for lower-risk entries, but the GLD is now well-extended from the 10-day line. It may spend some time consolidating the prior move from the 50-day moving average.

The same rule about buying on weakness also applies to gold-related stocks. Here we see a strong gap-up pocket pivot to new highs by Franco Nevada Corp. (FNV) yesterday, which looks a bit like a breakaway move. But it simply leads to a move back to the downside today on lighter volume. This is a constructive retest of the 10-day line today, so it did offer a lower-risk entry spot for those looking to own the stock. Right now, buying as close to the 10-day line as possible while using it or the 20-dema as a tight selling guide is the best approach.

Note also that Agnico Eagle Mines (AEM), not shown here on a chart, another gold stock I mentioned in a blog post last week, posted a pocket pivot yesterday as it attempts to break out of a short price range. The stock pulled back small today as it held relatively tight on lighter volume.

Sticking to your stops and selling guides is critical in this market, as Snap (SNAP) shows below. On Monday, the stock got hit with a downgrade from Morgan Stanley (MS) and gapped down through its 20-day exponential moving average. I was long the stock coming in on Monday, and it was quickly unloaded once it failed at the 20-dema.

For now, SNAP is off the table as a long idea, as is its close cousin, Twitter (TWTR), not shown. TWTR broke below its own 20-dema yesterday on heavy, above-average volume, taking it off the table as a long idea at that point. With the stock previously being able to hold on voodoo pullbacks to the 20-dema, once that pattern changed the stock was done.

Now TWTR sits below its 200-day moving average, while SNAP is now undercutting every prior low in its pattern except for the 18.90 low of March 17th and the 17.59 low of May 11th. I think it stands a good chance of moving below BOTH lows, so I would steer clear of this on the long side.

The market seems to have this habit of simply defaulting to the big-stock NASDAQ names, all of which continue to act well. Every once in a while, one powers to the upside, as Tesla (TSLA) has done so far this week. As I wrote over the weekend, the stock was holding in a tight range at that time and looked like it just wanted to go higher. That is precisely what it has done so far this week, as the bones of at least 31 million shorts are ground into a fine meal. This puts it in an extended position, and out of range of last week’s breakout.

Facebook (FB) held support at its 10-day moving average yesterday, but has failed slightly on last Friday’s and Monday’s breakout attempt. Nevertheless, this doesn’t strike me as a huge problem, and the 10-day line still serves as near-term support for the stock. Therefore, the stock can be considered buyable here using the 10-day line at as a tight selling guide. If the general market continues higher, FB will likely clear to new highs as well.

All the other big-stock NASDAQ names I follow also act reasonably well, with no blatantly negative action evident in any of these. My notes on each below:

Apple (AAPL) is hanging along its highs and above the 10-day moving average. Yesterday the stock posted a stalling pocket pivot, but two pocket pivots over the past four days haven’t yet led to a breakout to new highs. That may be coming as the stock tracks tightly along the 10-day line, where it is buyable using the line as a tight stop.

Alphabet (GOOGL) is holding at its 10-day moving average and $1.59 above the “Millennium Mark,” as volume dries up. Technically, this is in a buyable position using the 10-day line as a selling guide.

Amazon.com (AMZN) remains above the $1,000 Millennium Mark, but so far hasn’t continued significantly higher from there. That said, it is buyable on pullbacks close to the 1,000 price level and the 10-day line at 998.79, which I would use as a reference for near-term support.

Microsoft (MSFT) is extended following a breakout to new highs last week.

Netflix (NFLX) is holding up near its all-time highs as it remains extended from the 10-day moving average.

Nvidia (NVDA) is extended but tracking higher along its 10-day line which has served as support since the buyable gap-up after earnings in early May.

Chinese stocks remain a force in this market. After going nowhere for about three weeks since its post-earnings buyable gap-up in mid-May, Weibo (WB) pulled off a nice continuation pocket pivot today. The move came as the stock pushed back above the 10-day line on above-average volume. That would have been buyable at the point of impact near the 10-day line. Now it’s slightly extended, so we want to watch for any low-volume pullback to the line as a lower-risk entry opportunity.

Netease (NTES) has remained a bit choppy on an intraday basis lately, but that didn’t keep it from breaking out today on strong buying volume. While my preferred entry would have been along the 20-day exponential moving average last week, this is a buyable standard-issue base breakout. So, if you like to buy breakouts, there you go.

Momo (MOMO) popped off the 50-day moving average on Monday, as I speculated it might in this past weekend’s report. That led to a sharp two-day move on above-average buying volume on both days. Today MOMO paused to catch its breath and pulled into the 20-day exponential moving average where it found intraday support.

It then closed just barely in the upper half of its daily trading range on declining, but still slightly above-average volume. If this is going to complete the “LUie” pattern as the previous “L” turns into a full-blown “U,” then I would expect it to hold the 20-dema on this pullback. For that reason, we can consider pullbacks into the 20-dema right here as lower-risk entry opportunities. The 20-dema then becomes your tight selling guide.

Here are my notes on the rest of the China Five below:

Alibaba (BABA) is holding along the 10-day line and remains in a buyable position here or as close to the 10-day line as possible, using the 10-dma or the 20-dema as your selling guides.

JD.com (JD) popped back above its 10-day moving average on a slight increase in buying volume, but it was still below average and did not qualify as a pocket pivot either. That would include a five-day as well as a ten-day pocket pivot.

The hot Gilmo stock of the week has no doubt been Lumentum Holdings (LITE). LITE was buyable on Monday as it tested the 10-day line with volume drying up to -57% below average, and then again on Tuesday morning when it opened down slightly. It then took off on a huge pocket pivot move to all-time highs on heavy volume. This is quite extended at this point, but watch for any kind of pullback to the 10-day line as a possible lower-risk entry or re-entry opportunity.

As LITE steals the limelight in the optical space, Applied Optoelectronics (AAOI) is starting to quiet down along its 10-day moving average. Here we see the stock pulling into the 10-day line as volume declines to -18.3% below average today. We might look for volume to continue to dry up along the 10-day line, which would make for an optimal entry point along the 10-dma.

Nutanix (NTNX) looks to be tightening up in constructive fashion as it holds along its 10-day moving average. Volume finally declined to below average today as the stock held in its tightest daily range since its gap-up move after earnings in late May. This remains in a buyable position as it coils along the 10-day moving average and selling volume begins to simmer down. Volume declined today to -16% below average, which might be enough, although I wouldn’t be surprised to see the stock continue to hold along the 10-day line with volume drying up further.

Notes on other long ideas discussed in recent reports, some with charts, some without.

Activision Blizzard (ATVI) remains the same as it was over the weekend – extended. We’re just waiting to see whether this can set up again in constructive fashion.

Arista Networks (ANET) is extended after breaking out to all-time highs on Friday.

Cavium (CAVM) did pull into the 50-day line on Monday where it presented a lower-risk entry position, and then rallied back up to the 20-dema yesterday and today. This is a very choppy, volatile stock, so buying as close to the 50-day line as possible is the best way to limit risk.

Edwards Lifesciences (EW) is extended from the 10-day line. Pullbacks to the line would offer lower-risk entries.

Electronic Arts (EA) remains extended. Watch for pullbacks into the 10-day line, now at 113.66, as potentially lower-risk entries, although the higher it goes the more I’d prefer to see a sharper pullback to the 20-dema as a more opportunistic entry.

First Solar (FSLR) failed to hold support at the 10-day moving average, and is now at the 20-dema with volume drying up to -40% below average today. If you tried to buy this at the 10-day line and were stopped out on Monday, then this is another entry spot. However, I would have to say that we’re looking for an appearance from the Ugly Duckling here as the stock sinks further to the downside after some strong-volume moves to higher highs a couple of weeks ago.

GrubHub (GRUB) has pulled back into its 10-dma and 20-dema on an extreme voodoo volume signature at -62% below average. This puts the stock back in a lower-risk entry position using the 20-dema as a tight selling guide.

Impinj (PI) was last buyable at the 10-day moving average on Monday, and is now extended. Pullbacks to the 10-day line remain your references for lower-risk entries.

iRobot (IRBT) looks to consolidate along its 10-day moving average, and for now it appears that pullbacks to the 20-dema would constitute your best lower-risk entry opportunities given the extended state of the stock currently.

Line Corp. (LN) is holding in an excruciatingly tight three-day flag after posting a gap-up move on Friday. The only way I’d be interested in buying shares now would be on a retest of the 50-dma or the 20-dema.

Palo Alto Networks (PANW) has continued to edge higher after last week’s bottom-fishing buyable gap-up and move above the 200-day moving average. From here only low-volume pullbacks closer to the 200-day line would offer lower-risk entries.

Salesforce.com (CRM) is holding tight along its 10-day line as volume declines, and is buyable using the line as a tight selling guide.

ServiceNow (NOW) is extended from the $100 price level, and only pullbacks to the 10-day moving average would offer lower-risk entries from current levels.

SolarEdge Technologies (SEDG) has pulled into the 20-dema on volume that was -44% below average today, putting it in a lower-risk entry position using the 20-dema as a tight selling guide. As I wrote over the weekend, a pullback to the 20-dema would be my preference as a potential entry opportunity given the prior sharp upside move since early May.

Square (SQ) remains extended as it just keeps pushing higher, clearing the 24 price level on heavy volume both yesterday and today. It almost looks as if the company is about to be bought out, so if you are long this I see no reason to sell it just yet.

Sunpower (SPWR) has pulled back to its 20-dema on light volume. This could present a very opportunistic entry using the 20-dema as a tight selling guide..

Take-Two Interactive (TTWO) popped to new highs today on a five-day pocket pivot signature. Over the weekend I pointed out the tight action at the 10-day line, which put it in a buyable position along the line both Monday and yesterday.

Universal Display (OLED) was discussed in a blog post last weekend as it was holding tight along the 10-day line. It broke out on Monday on a pocket pivot move, and is now slightly extended.

Veeva Systems (VEEV) looks to be working on a new base. I’d give it some time here and wait for it to set up again. Note, however, that it acts constructive along the 10-day line, finding volume support today as it undercut the line but then rallied to close back above it and in the upper part of its daily trading range. So, if you are impatient, your best lower-risk entries would be along the lows of the current seven-day flag formation in the 63-64 price area.

Western Digital (WDC) is still flopping around its 10-day and 20-day moving averages, but volume is drying up so it remains buyable along the two moving averages while using the 50-dma at 86.79 as a maximum downside selling guide. Otherwise the 20-dema would serve as a much tighter selling guide.

Workday (WDAY) cleared the $100 Century Mark on Friday after earnings, and today pulled into its 10-dma where it was buyable using the $100 level as a tight selling guide. Along with NOW and CRM, it remains a big-stock cloud leader in this current market.

Zillow (Z) was last buyable in the low-43 price area after I discussed the stock in a blog-post last Wednesday. It is now extended, and pullbacks to the 10-day line at 44.24 would offer your next references for lower-risk entries.

For newer members: Please note that when I use the term “20-day moving average,” “20-day line,” or “20-dema” I am referring to the 20-day exponential moving average. I use four primary moving averages on my daily charts: a 10-day simple (the magenta line), 20-day exponential (the green line), 50-day simple (the blue line) and 200-day simple moving average (the red line). On rare occasions, I will also employ a 65-day exponential moving average (thin black line).

The lousy action in SNAP and TWTR notwithstanding, most of my favored long ideas continue to act well as they either try to set up again or are simply extended to the upside. I suppose the market could spin out at any time and for any reason, but for now the action of individual stocks tells you all you need to know.

Exercise patience and pick your spots judiciously when you see something you like pulling into a potential area of support, and then watch your stops. In short, pick your spots, and watch your stops. Take it from there.

At the time of this writing, of the stocks mentioned in this report, Gil Morales, MoKa Investors, LLC, Virtue of Selfish Investing, LLC, and/or Gil Morales & Company, LLC held positions in MOMO and NTNX, though positions are subject to change at any time and without notice.